By limiting the discussion to the use of two factors--capital and labor-the choice of technique in most alternative small-scale units in a number of important industrial sectors cannot be explained. The rural industries certainly use more labor and most of the rural process industries have higher capital/output ratios than alternative largescale counterparts. However, this means that Chinese economic planning also considers other criteria which will be evident from the cement and nitrogen fertilizer production. We assume To in figure 1 to be the modern technique used for the manufacture of an industrial product at a certain point in time. The likely development of this technique in developed countries would be in the dotted area (II), because of relative abundance of capital and rising labor costs. It would be in the interest of developing countries to have a development in the shaded area (III), to make better use of scarce capital resources and abundant manpower resources. Using available plan prices it appears that the alternative (smallscale) techniques being used in a number of Chinese industrial sectors would fall in the remaining area (I). This would indicate that they are inferior techniques, perhaps partly reflecting the considerable economies of scale which affect process industries. There can be no doubt that, in a strict economic sense, many alternative techniques used in Chinese process industries are inferior, using available Chinese plan prices. However, they may be efficient when seen as interacting components in a local industrial system. Figure 1. Technology development and capital/labor ratios. Nitrogen Chemical Fertilizer 8 China has four main options in providing her agriculture with nitrogen chemical fertilizer. First, fertilizer can be imported. Second, large plants for making fertilizer can be imported. Third, China can manufacture her own large-scale plants for producing nitrogen fertil 8 The early overall development of China's fertilizer industry is described in "China's fertilizer economy" by Jung-chao Liu, Edinburgh University Press, 1971. It should be noted that a considerable amount of the nitrogen intake comes from nonchemical fertilizers. However, it is virtually impossible to quantify the contribution of nonchemical fertilizers to total nutrient intake, but it seems likely that, until the early seventies, it probably exceeded, on average, the amount provided by chemical fertilizers. izer. Fourth, China can continue to construct small-scale plants to be spread all over the country. Some of the characteristics for the four different options, all of which have been exercised in the past, are enlisted in table 1. TABLE 1.-ALTERNATIVES IN PROVIDING NITROGEN CHEMICAL FERTILIZER As shown in table 2, China has imported very large quantities of nitrogen chemical fertilizers. The country has been the single largest buyer of chemical fertilizer in the world market. The figures below would indicate that approximately 50 percent of China's consumption of nitrogen fertilizer in 1970-71 was covered through imports. Considering the domestic plan prices for electricity and equipment, it has been advantageous for China to supply imported fertilizer to certain areas of the country-mainly the coastal provinces and areas which could be reached by railway or water transportation. Nitrogen chemical fertilizers have been available in the world market at very low pricesroughly $40 (f.o.b.) per ton of urea, for example. However, the cost of petroleum feedstock has raised production costs by about 150 percent since the beginning of 1973. Furthermore, the present imbalance between demand and supply has pushed the price much higher, and urea is presently (June 1974) sold at approximately $300 per ton." 1 TABLE 2.-China's fertilizer imports in recent years' Contracts for 1970-71_ Million tons nitrogen 1,785 1, 601 1, 153 1 Review of the fertilizer market in the People's Republic of China, the British Sulphur Corporation Ltd., London 1972 or 1973. The second alternative for providing the agricultural sector with increased amounts of chemical fertilizer is to import complete plants. This option has been exercised in the 1950's when plants were bought from U.S.S.R. and again in the mid-1960's when a couple of plants were bought from Western Europe and Japan. The situation which the planners have to deal with has once more become ripe for the import of chemical fertilizer plants. Several factors appear to have contributed to the new situation. First, the rapid price increase for chemical fertilizer in the world market has made the import option the least favorable one. Second, availability of domestic petroleum feedstock in relative ample quantities has tilted the balance in favor of the large-scale modern plants which, in the short run, only could be obtained through imports. Third, the prospects for increased foreign exchange earnings may have improved considerably in recent years because of the development of the petroleum industry and the more mature industrial base which now exists in China. Fourth, the country may experience an urgent need to rapidly increase agricultural productivity in order to provide more raw materials for domestic industry and exports. 10 Information provided by the Swedish manufacturer of nitrogen fertilizer-SUPRA in Landskrona. As a consequence of deliberations which can at present only be vaguely indicated, China has, since the beginning of 1973, contracted ammonia urea plants with a total annual production capacity of 3.78 million tons of ammonia. That amount exceeds the total domestic production of nitrogen in 1973. The total cost for these plants amounts to $442 million, with an average price of $36.3 million. The plants are among the biggest in the world today, each with a daily production of ammonia of approximately 1,000 tons or more, which more or less equals the output of 100 small plants. When these plants go into production, starting in 1976, the share of production coming from the small-scale fertilizer plants will be considerably reduced. The small-scale plants have played an increasingly important role in providing Chinese agriculture with nitrogen since the mid-1960's. The decision to base China's development strategy on a dual approach was reached before the Great Leap Forward was formally launched in early May 1958. This is evident from the following quotation from a news item in April of that year.1 11 An 8,000-ton nitrogenous fertilizer plant as designed by the Ministry of Chemical Industry, together with its auxiliary electric power station can be built in less than half a year with an investment of 3.5 million yuan. This is within reach of a county. If half of the country's over 2,000 counties built one such plant each it would mean an increase of 8 million tons of nitrogenous fertilizer in a year. The small plants existing today differ considerably in size. The idea of small nitrogen fertilizer plants originated in the new economic planning of the late fifties which manifested itself in two different development approaches. First, the counties and regions should establish their own fertilizer factories. Second, fertilizer production and most other industrial activities should be located in the people's communes which were established in the autumn of 1958. The latter approach was thought to justify a smaller plant, with an annual production of 800 tons of ammonia. Technical deficiencies and the very high costs of production led to the closing down and redesign of these very small plants. With very few exceptions, small plants were also transferred to county-level control. The other two basic designs of the Great Leap Forward period have also undergone changes. The smaller plants have been expanded to a standardized unit of 3,000 tons capacity. A plant of this size is usually expanded to an annual production of 5,000 tons ammonia as soon as the demand develops and the technical problems have been overcome. Larger plants with an annual production capacity of 10,000-15,000 tons are today found mainly in counties which are economically well developed and cover relatively larger areas. These areas include Kwangtung province in the South, and rural areas of Shanghai. The different plant sizes are listed in table 3. TABLE 3.-Small-scale nitrogen fertilizer plants Size (tons) (Annual production of ammonia) Great Leap Forward design for commune-level plants__. 800 2,000 3,000 Modified version of the 3,000-ton plants (expansion is usually carried out in a 2d stage). 5,000 Standard design in 1958 for region-level plants---- 8,000 11 Standard blueprints for local industry, New China Agency, Mar. 19, 1958. (In Survey of China Mainland Press No. 1739.) After the rehabilitation of the economy in the early 1960's, the central government again started to pursue a policy of decentralization of fertilizer production by encouraging the construction of very small fertilizer plants with an annual production of less than 10,000 tons of ammonia. Almost all of the existing small nitrogen fertilizer plants produce ammonia as an intermediate product which is then converted into ammonium bicarbonate NH4HCO3). The plants of the late sixties and early seventies are similar to those which had first been built in the late fifties and early sixties. At that time, the technology was not sufficiently good to make them a successful venture. Another serious hindrance may have been the fact that trained manpower was not available. The conditions during the late sixties were much better and made it possible for the plants to be constructed in large numbers and to operate with reasonable efficiency. Consequently, the share of the small-scale plants has increased rapidly from about 12 percent in 1965 to 54 percent in 1973 of a total nitrogen production of 15 million tons with nutrient content of roughly 20 percent.12 The share of the small-scale plants may continue to increase for another year or two and will then drop drastically when the very large imported plants go into production. The development of the small-scale nitrogen chemical fertilizer plants-as shares of total production-is given in table 4. It may be noted here that China in 1973 produced almost 8 million tons of nitrogen chemical fertilizer in approximately 1,000 small plants located in half of the counties. This was the goal envisaged by the planners in 1958 and referred to in the earlier quotation. TABLE 4.-ESTIMATED CHEMICAL FERTILIZER PRODUCT IN CHINA1 1 The figures and percentages have at various times been published by Chinese news media but are somewhat ambiguous. All others are estimates based on the reported information. See forthcoming monograph by the author for specific references. The small scale-nitrogen fertilizer plants are today found almost everywhere in China. A few plants may even have been located where raw material is not available, where the technical base does not exist. or where other necessary conditions for an efficient use do not exist. The setting up of new plants today requires a careful screening procedure at provincial level after the national authorities have made their 12 The small-scale plants accounted for a considerably larger share of phosphate fertilizer production (around 75 percent) in 1973. Economics of scale are less pronounced for the types of phosphate fertilizer usually produced in small-scale plants in China today. allocation of plants to the various provinces. All of the following points are usually taken into account when the provincial authorities decide if a particular county should set up a small nitrogen fertilizer plant. 1. Size of the county (market). 2. Need to rapidly increase agricultural production (potential results). 3. Availability of industrial knowledge in order to guarantee production. 4. Availability of irrigation water to guarantee efficient use. 5. Access to electricity and process water. 6. Access to transportation for raw materials and finished products. 7. Ratio between cultivated area and population. A high ratio usually gives priority because of difficulties in providing sufficient amounts of manure. The policy of decentralization of fertilizer production has had the effect of reducing costs to the central government and placing some of the burden on the rural areas which provided part of the necessary financing. The policy of small-plant construction was formulated in order to utilize local resources to an increasing extent and to relieve the transport system of as much fertilizer material as was feasible. Their construction involved the use of equipment manufactured in more or less centralized workshops and the services of technicians from elsewhere, but once the staff was trained and the plant started up, the new production facility was expected to be run by local people, using local raw materials. The proper choice of raw material is a critical factor in minimizing the burden on the transport system and maximizing the use of local resources. Consequently, the small-scale fertiizer plants have been designed for different raw materials such as coke, brown coal, coke oven gas which were the traditional raw materials in the late fifties and early sixties. Most of the early small plants were designed to use coke. This was a result of the rapid proliferation of local coke ovens, a movement which at the time was tied in with the local manufacture of iron and steel. However, the design has been modified to accommodate high-quality coal, as well as coal powder and low qualities of coal available in the South. Without these design changes, the small plants would have become dependent on raw materials from the outside with increased production costs as a consequence. The rapid development of the petroleum industry is once more changing the raw material situation. A number of small-scale fertilizer plants located near refineries are now contemplating the switchover to petroleum feedstock. The choice of raw material has consequences for the investment costs and production costs. It appears in the absence of petroleum feedstock-that coke would give the lowest investment per ton of finished product. A plant producing 2,000 tons of ammonia or 8,000 tons of ammonium bicarbonate per year would require an investment of 295 yuan per ton of finished product if based on coke. The investment per ton would be 388 yuan if the production was based on brown coal. See table 5 for further information on raw material and fuel consumption, number of workers and production per worker in smallscale plants of different sizes and using different raw materials. This |